The World Bank has released a report stating that the macroeconomic challenges experienced by Ghana in 2022 were due to a combination of domestic imbalances and external shocks and projects full-potential recovery by 2025.
The country witnessed currency depreciation, rising inflation, and a decline in investor confidence.
The report, titled “Price Surge: Unraveling Inflation’s Toll on Poverty and Food Security,” highlights pre-existing fiscal vulnerabilities, including mounting debt, a rigid budget weakened by high energy sector costs, and chronically low public revenues.
These challenges were further exacerbated by difficult global economic conditions, according to the World Bank’s latest Economic Update.
Ghana’s economic growth is projected to slow down to 1.5% in 2023, remaining depressed at 2.8% in 2024.
However, the economy is expected to recover to its potential growth by 2025.
To address macroeconomic instability, the report emphasises the need for corrective fiscal and monetary policies that would influence total demand and slow down non-extractive GDP growth.
Pierre Laporte, the World Bank country director for Ghana, Liberia, and Sierra Leone, warns that high inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels. Nevertheless, growth is expected to recover as fiscal consolidation eases and structural reforms take effect.
“As a result of efforts to address macroeconomic instability, corrective fiscal and monetary policies are expected to influence total demand and slow down non-extractive GDP growth”, said Laporte, adding: “High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels, leading to subdued non-extractive growth in the short term; but growth will begin to recover to its potential by 2025 as drag from fiscal consolidation fades and macroeconomic stabilisation and structural reforms start bearing fruit.”
The report offers recommendations to tackle the root causes of the crisis and bolster economic growth and resilience.
It suggests sustainable methods to increase domestic revenue, streamline tax incentive regimes, and improve revenue administration.
Tighter expenditure controls are proposed to enhance budget execution accuracy and prevent new arrears accumulation.
Addressing energy sector shortfalls is critical to ensuring fiscal sustainability, and the report calls on the government to fully implement the Energy Sector Recovery Programme.
Additionally, rebuilding the financial sector’s capital buffers is deemed necessary for promoting financial stability and development.
To attract more foreign direct investment (FDI), the report urges the government to enhance the investment climate through transparency, accessibility, and quality business regulations.
Moreover, it highlights the importance of prioritising investments that maximise resilience to climate change, as macroeconomic shocks tend to affect the poorest disproportionately.
The report also emphasises the impact of high inflation on food security and poverty in Ghana.
Nearly 850,000 Ghanaians were pushed into poverty in 2022 due to rising prices and loss of purchasing power.
To mitigate this, policymakers should enable farmers to adjust to global demand and market opportunities.
Medium-to-long term policy actions should focus on investing in agriculture research and technology transfers to increase productivity and reduce production costs. Additionally, the government should promote climate smart agriculture initiatives to help farmers adapt to changing weather patterns and withstand future shocks.
In line with supporting higher domestic food production, policies should aim to improve integration with global food supply chains, foster regional and global trade, reduce barriers to trade, promote regional integration, and increase market transparency.
Policies that aim to reduce market distortions such as subsidies, taxes, and price controls can also enhance market efficiency and reduce food waste.
The report concludes that Ghana’s economic situation remains challenging in the short term, but with the implementation of appropriate measures, the country can rebound and achieve sustainable poverty reduction and shared prosperity.